Milton Friedman on Corporations

Milton Friedman famously argued that corporations have no social responsibility, only a responsibility towards their customers and shareholders to maximise profit. In fact, he even supported legislation to makes them to do this. Funny how legislation is OK when…no, forget it (again).

Friedman’s position is obviously an odd one. If corporations have no social responsibility, then presumably they are, in abstract, permitted to steal, defraud and coerce for their customers and shareholders? My guess is Friedman wouldn’t support this position. This leaves two possibilities:

(1) They shouldn’t do these things because they are constrained by the law. In other words: they should obey the law, just because it’s the law. I can’t imagine Friedman supporting a position like this, either.

(2) They shouldn’t do these things because they have a moral obligation apart from the law. In other words, they have some social responsibility.

Presuming Friedman doesn’t think corporations are allowed to coerce, defraud and steal, and presuming he doesn’t think laws should be obeyed simply because they are laws, the only conclusion can be that corporations have some moral and social obligations. The question then becomes where these lie.

As with much of libertarianism, on close inspection, the dichotomies become blurred, and the debate collapses back to where it’s always been.

(1) I was thinking something similar when I wrote this. A corporation can’t ‘do’ anything without somebody carrying out the action or ordering it.

(2) The funny thing is that corporations do, and always have, committed theft, fraud and coercion for profit. From the beginning. Libertarians who speak of profit maximisation at all costs rarely mention this.

Friedman would reject the characterization of the requirement of abiding by basic laws as a “responsibility”. Responsibility- a thing that one is required to do as part of a job, role, or legal obligation (Oxford English Dictionary)

“If corporations have no social responsibility, then presumably they are, in abstract, permitted to steal, defraud and coerce for their customers and shareholders? My guess is Friedman wouldn’t support this position.”

“The Board and the Management owe the shareholders fiduciary duties. If the Board and Management breach the duties owed to shareholders, then they can be liable to the corporation or the shareholders for an injury or damages.

“The goal is to maximize the corporation’s profits.”

The last statement does not follow from the previous ones. Yes, that is the common understanding. But the shareholders may have different goals. There is no particular reason that a corporate person, unlike the humans who own it, has to be a sociopath or a Frankenstein’s monster.